Balakrishna Eradi, C.J.
1. The Income-tax Appellate Tribunal, Cochin Bench (hereinafter called ' the Tribunal'), has stated a case and referred the following two questions to this court under Section 256(2) of the I.T. Act, 1961--for short, 'the Act'--pursuant to the order passed by this court in O.P. No. 2673 of 1976 dated June 15, 1978 :
' (1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that veethapalisa or the excess of receipts over the instalments paid by the assessee in its chitty account amounting to Rs. 5,147 and credited to its profit and loss account is not assessable to income-tax for the assessment year 1973-74 ?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law and had any materials before it for holding that there is no nexus between the chitty account and the business of the assessee, and is not the decision of the Tribunal on such basis, perverse and unreasonable '
2. The assessee is a firm carrying on wholesale trade in piece-goods. The firm had subscribed to a kuri conducted by the Lord Krishna Bank Ltd., Kodungallur. That kuri commenced on April 30, 1956, and terminated on January 30, 1972. It is seen from the statement of the case that the auctions for bidding the kuri were conducted quarterly. The assessee did not bid the kuri at any time during its currency. When the kuri terminated on January 30, 1972, it was found that the assessee was entitled to receive a sum of Rs. 5,146.63 in excess of what it had actually contributed by way of subscriptions over the entire period of the duration of the kuri. The said excess amount represented the veethapalisa allowed to the non-prized subscribers in respect of the various subscribers. The assessee had brought the aforesaid amount of Rs. 5,146 into its accounts. For the assessment year 1973-74, for which the relevant accounting period was the year that ended on August 15, 1972, the assessee claimed before the ITO that the aforesaid amount of Rs. 5,146 was not assessable as a revenue receipt. It was contended that it was only a casual and non-recurring receipt. Thisclaim was rejected by the ITO, who brought it to tax treating it as an income of the assessee. The AAC, before whom the matter was carried in appeal by the assessee, confirmed the assessment made by the ITO. Thereafter, the assessee filed a second appeal before the Tribunal. The Tribunal took the view that merely because the assessee had received an amount in excess of the subscriptions actually paid by it, it could not be said that the excess amount so received was assessable. In the opinion of the Tribunal, the accrual of dividend or veethapalisa did not depend upon the assessee's volition, but depended entirely upon the bids made by the other subscribers wanting to prize the chitty at a discount. On this basis, the Tribunal held that the amount of Rs. 5,147 received by the assessee had to be regarded as a casual and non-recurring receipt, which was not liable to be taxed. The Tribunal also held that since this was not a case where the assessee had become a subscriber in the kuri for getting finances for its business, any profit arising from the chitty could not be regarded as business income unless there was a clear nexus established as between the assessee's business and the chitty transaction. In the opinion of the Tribunal, the fact that the subscriptions paid to the kuri were drawn from the business fund would not be sufficient to establish such nexus. The Tribunal went on to hold that the fact that the assessee never bid the chitty at the auctions showed that it had joined the chitty only as an investment and hence the assessee's contention that the amount could not be brought to tax had to be upheld. On the aforesaid reasons, the Tribunal allowed the assessee's appeal.
3. Elaborate arguments were advanced before us by counsel appearing for the revenue as well as by the learned advocate for the assessee. Counsel for the revenue contended that the Tribunal was in error in treating the amounts received by the assessee by way of veethapalisa as casual receipts and in further holding that it was necessary to establish a nexus between the business of the assessee and the chitty transaction in order to render the amount in question taxable. Counsel for the revenue submitted that the assessee-firm having joined the chitty transaction and received amounts by way of dividends or veethapalisa, such amounts are clearly taxable, unless it is shown to be covered by any of the exemptions provided for by the Act.
4. The counsel for the assessee on the other hand sought to support the conclusion recorded by the Tribunal that the amount received from the chitty transaction by way of veethapalisa was a casual or non-recurring receipt by relying on the decision of the Punjab and Haryana High Court in CIT v. Sardari Lal Mehra . He also submitted that the Tribunal cannot be said to have committed any error of law in holdingthat the assessee was not liable to be taxed in respect of the amount in question, unless it was shown to be its business income.
5. In our opinion, the entire approach of the Tribunal to the case was vitiated by an omission to notice certain crucial aspects having a vital bearing on the question of assessability to tax of the receipt in question. Admittedly, the assessee has been maintaining its accounts according to the mercantile system. In such circumstances, whether it could be assessed in respect of the entire amount of Rs. 5,147 received by way of veethapalisa in respect of a period of 16 years during which the kuri arrangement was in force, has not at all been considered by the Tribunal. Further, it is not as if all chitty fund transactions are governed by any uniform set of conditions of contract. The terms and conditions of each transaction will have to be gathered from the kurivaryola pertaining to it. In the large generality of cases such kurivaryolas provide for the distribution of dividend to the non-prized subscribers immediately after each auction is conducted and the bid of the prized subscriber is known. In such cases the right to the dividend or veethapalisa will accrue to the subscriber under the chitty contract in the month succeeding that in which each auction is held. There may, however, be cases where the kuri contract provides for an accumulation of the dividends and for payment of the same to the non-prized subscribers only after the termination of the whole kuri. Yet another aspect having an important bearing on the question is whether the kurivaryola itself provides for a guaranteed minimum dividend by way of interest on investments to non-prized subscribers. If there is such a condition, undoubtedly the amount distributed by way of veethapalisa will at least to the extent of such guaranteed dividend be income and not a casual or non-recurring receipt. It is not possible to state in the abstract without reference to the terms of the particular kurivaryola that the accrual of the right to receive dividends to a non-prized subscriber is a matter of mere chance and that hence if any amount is received by way of veethapalisa, it has to be treated as a casual receipt. No conclusion in regard to the aforesaid question can, therefore, we satisfactorily or reasonably reached without looking into the kurivaryola. Unfortunately, this aspect has been omitted to be noticed by the Tribunal as well as by the first appellate authority and the ITO, The result is that the decision of the Tribunal on the question as to whether the disputed amount is assessable as income in the hands of the assessee has been based on mere speculations and conjectures as to the nature of the kuri transactions and its terms. Another unsatisfactory aspect in the reasoning of the Tribunal is that it assumed that the amount in question will not be taxable in the hands of the assessee unless some nexus is established as between the asses-see's business and the chitty transaction. The assessee-firm has joined thechitty transaction utilising its business funds. The Tribunal itself hasfound that the chitty instalments had been paid from out of the business.It has further found that in joining the chitty, the assessee had only treated it as an investment. If business funds have been invested by theassessee and some return has been obtained from such investment, we failto see how the assessee can escape liability for tax in respect of the amountrealised by way of such return from the investments. This aspect alsorequires to be examined by the Tribunal.
6. Inasmuch as we have found that the Tribunal has reached the conclusion that the sum of Rs. 5,147, being the amount received by the assessee by way of veethapalisa, is not assessable to income-tax for the assessment year 1973-74 without adverting to or considering the relevant factors and materials, which ought to have been got produced and taken into account, we decline to answer the questions raised by the Tribunal and leave it to the Tribunal to take appropriate steps to adjust its decision under Section 260(1) of the Act, in the light of what we have stated in this judgment. We make it clear that we decline to answer the questions, because relevant materials are not before us and these were not available even before the Tribunal and without advertence to those materials, no conclusion could be reasonably or properly reached on the question of taxability of the amount. It will be open to the Tribunal to rehear the appeal and dispose of the appeal after getting the kurivaryola produced, in accordance with law bearing in mind the observations contained in this judgment. The Tribunal may, if it so considers necessary, remand the case to the AAC or the ITO and direct additional evidence being taken by them. The reference case is disposed of on the above terms. There will be no direction regarding costs.
7. A copy of this judgment, under the seal of the court and the signature of the Registrar, will be forwarded to the Tribunal as required by law.